Cattle feeders told to anticipate having to manage minimal swings of $25 to $35/cwt. in the cash fed cattle market.
“It’s the beef market that now holds the bullish luster. The baton has been taken from (the corn farmers') left hand to your right hand and you now can expect cattle prices to stay at a very high level for the foreseeable future.”
That’s what Dan Basse, president of Chicago-based AgResource Company, told cattle feeders last week at the Feeding Quality Forum in Amarillo, TX, sponsored by Certified Angus Beef, Zoetis, Purina, Roto-Mix and Feedlot magazine. And while Basse said there are plenty of reasons for cattle feeders to be smiling, he warned them not to get too smug, because along with great opportunity will come great challenge.
“Your big challenge is the same as the grain farmers (had during the ethanol era)—how are you going to manage this risk in the market? How do you manage swings of $25 to $35/cwt. in cash fed cattle? And I think that may be a minimum.”
For a variety of reasons, Basse says corn prices will remain low for at least 5-7 years. And how low is low? “AgResource estimates that if you model normal weather going forward, corn will hold between $2.70 to $3.20/bu. all the way to 2020,” he told cattle feeders. For the immediate future, he says cash price for this crop year, which will end in a week or two, will be $4.45. “We see next year at $3.60.”
And, for a variety of reasons, he says cattle prices will stay high. “I want you to think bullishly for at least 3-5 years at a minimum, possibly longer,” he says. “This is your time.”
A trend toward lower feedyard placements, particularly of lightweight calves and growing export demand, among other factors, convince Basse that the highs for cash fed cattle haven’t been seen yet this year. “Our view is the fourth quarter could put a high in the cash cattle market, somewhere between $162 and $168,” he told cattle feeders.
Looking ahead, however, he’s concerned about how and who will grow the beef business. He told cattle feeders not to expect much help from Canada or Mexico, as feeder cattle imports from our two neighbors will likely remain tight. Cow-calf producers are, on average, getting older and may not want to expand as aggressively as the market is telling them to.
And then there’s logistics. Basse says we have somewhere around 34.5 million acres of pastureland in the U.S. “That is not enough to support the expanding cowherd we need.”
Does that offer an opportunity for cattle feeders, looking for noses to fill empty bunk space, to get into the confinement cow-calf business? “Maybe corn will get cheap enough that some of that concrete in the Midwest that hasn’t been used comes back into play and they put cows on it. I can’t figure out how the factory starts back up. How do we get the cow-calf man incentivized to do more?”
Basse told cattle feeders that, in his opinion, the cow factory is going to have to an integrated factory at some point. “Is anybody planning a cow-calf operation in their feedyard?” he asked the crowd. “I don’t see any hands going up, which tells me we’re still thinking about it. And maybe that’s not a bad thought,” he told cattle feeders.
Regardless of whether they stick with their traditional business model or look at new opportunities, volatility will be the watchword in cattle feeding going forward, Basse says. “You’ve got to know your breaks, you’ve got to know what your margin has got to be and you’ve got to have some kind of strategy, whether it’s options or futures, to protect that going forward,” he says.
“It’s going to be a big challenge because you have that profit opportunity on the table. The question is, what are you going to do with it?”
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